A Crypto Primer: Currencies, Commodities, Tokens

Crypto Tokens vs. Cryptocurrencies vs. Crypto Commodities: An Overview

Crypto tokens are any tokens created using a blockchain. Cryptocurrencies are crypto tokens designed to be used as payment methods. There are two crypto commodities definitions used by various parties: cryptocurrencies are commodities, and crypto commodities are tokens representing an underlying asset.

These three terms are often used interchangeably, but as you’ll see, there are distinct differences.

Key Takeaways

• Crypto tokens are any tokens created using a blockchain, including cryptocurrencies, non-fungible tokens, crypto commodities, or security tokens.
• Cryptocurrencies are crypto tokens that are used as payment methods or as speculative investments, generally assigned an exchange or market value.
• Crypto commodities are crypto tokens representing a physical commodity on a blockchain or, according to the Commodities and Futures Trading Commission, any virtual currency.
• Value should be determined based on how the virtual asset is used, intended to be used, market sentiments and traction, and expectations.

Crypto Tokens

A token is a representation of something else. It could represent data, a person’s security credentials, information stored within a database, or permissions to access a distributed ledger.

Tokens issued through a blockchain are crypto tokens. This blanket term includes cryptocurrencies, non-fungible tokens, crypto commodities, security tokens, or any other virtual asset associated with a blockchain. Bitcoin’s native token, bitcoin, is a crypto token, as is Ethereum’s ether.

Cryptocurrencies 

Cryptocurrencies are crypto tokens issued using a blockchain, designed to be used as an alternate form of payment. However, “cryptocurrency” has also become a blanket term used to refer to any token that has an exchange or market value.

Examples of cryptocurrencies include Bitcoin, Ethereum, Dogecoin, Solana, and Cardano. Cryptocurrencies are also called crypto coins, coins, tokens, and virtual currencies.

Note

As cryptocurrencies and blockchains continue to evolve, definitions change as more people become familiar with the concepts and terms used.

Crypto Commodities

There is some debate as to what constitutes crypto commodities, but in general, there are two definitions in use:

• Bitcoin and other virtual currencies, as they are issued or when used in derivative contracts, are commodities as declared by the Commodities and Futures Trading Commission (CFTC) and can thus be considered crypto commodities.
• A token that represents an underlying asset (has its value transferred to a blockchain token) becomes a tradable crypto commodity—unless it represents a security or meets the definition of a security, in which case it is a security token.

The CFTC’s definition is clearly stated: The commission believes all virtual currencies and their derivatives are commodities and fall under its jurisdiction.

By the second definition, a crypto commodity can be anything that has its value transferred to a token, which is called tokenization. For example, oil is considered a commodity in the physical world. There is a certain cost associated with extracting it from the earth, and it is used to power the global economy. If one barrel of oil were represented on a blockchain by one token, that token would become a crypto commodity.

Why the Terms Are Important

For investors, it’s important to distinguish between these different types of tokens because the terms are loosely applied by many people, which can cause confusion for those just starting out.

“Crypto tokens” is a blanket term that encompasses all blockchain tokens. But depending on who you’re talking to, they could be referring to a cryptocurrency—they might just be using a different term.

Cryptocurrencies are usually valued based on market traction, supply schedules, network difficulty levels, and speculation about their future. Crypto commodities, as defined by the CFTC, should follow market prices because they are either virtual currencies or derivatives.

According to the second general definition of crypto commodities, the tokens should be valued based on the prices of the underlying assets.

What Exactly Is a Crypto Token?

“Crypto token” is a blanket term or category that includes all assets issued on a blockchain, such as cryptocurrencies, non-fungible tokens, or security tokens.

Is Cryptocurrency Still a Good Investment?

Cryptocurrency might be a good investment for someone who enjoys speculating and can tolerate the risks inherent to crypto investing. If you’re searching for a way to build wealth, a nest egg, or save for retirement, cryptocurrency might not be a good option.

Is Ethereum Considered a Commodity?

Ethereum is a blockchain designed to function as a worldwide virtual computer for building applications. Its native token, ether, is considered a commodity by the CFTC because it is a virtual currency.

The Bottom Line 

While they are sometimes used interchangeably, the terms “cryptocurrency” and “crypto commodity” refer to subcategories of crypto tokens, which are tokens created using a blockchain. How they are valued by investors and speculators should depend on how they are traded and used and how popular they are in the market.

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As of the date this article was written, the author owns BTC and LTC.

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